Gold News

Gold Price Slips But Emerging Markets Seek "Catastrophe Insurance" as Brazil Signals "International Currency War"

Gold Prices slipped overnight Monday and early Tuesday, falling to 4-session lows against all major currencies bar the Euro after the Moody's rating agency cut its credit rating on Anglo Irish Bank to near "junk" status.

US investors wanting to Buy Gold today saw the price slip to $1287 an ounce, some $14 below yesterday's new record highs, while Silver Prices retreated to $21.17 an ounce from their own 3-decade peak. 

US investors wanting to Buy Gold today saw the price slip to $1287 an ounce, some $14 below yesterday's new record highs, while Silver Prices retreated to $21.17 an ounce from their own 3-decade peak.

The Euro fell from 5-month highs to the Dollar, buoying the Gold Price for French and German investors above €30,950 per kilo.

Against the Japanese Yen, the Dollar was little changed, holding just ¥1 above the 15-year lows which spurred Tokyo's central bank to sell it own currency this month to try and regain export competitiveness.

"We're in the midst of an international currency war," said Brazilian finance minister Guido Mantega on Monday.

The Real has reached 10-month highs vs. the Dollar, and is the world's "most over-valued currency" according to Goldman Sachs' analysts.

"This threatens us because it takes away our competitiveness," says Mantega.

Now No.9 in the league table of foreign reserve holders, Brazil keeps less than 1% of its $300bn central-bank reserves in Gold Bullion.

The world's biggest forex holders are all "underweight gold by any measure" said Philip Klapwijk of the GFMS consultancy here at the London Bullion Market Association's 2010 Berlin conference on Monday.

"Off-market" sales of Gold Bullion by European and even the US governments "may [in time] facilitate  a transfer of bullion from West to East" and other large forex holders, Klapwijk said, reminding delegates of the gold transferred from the US to Europe to settle America's balance of payments debts in the late 1950s and early '60s.

For the moment, however, European central-bank sales have ground to a halt - prompted by "a lack of confidence in alternatives" - while emerging economies are Buying Gold both "to diversify" their large US-Dollar holdings, and also as "catastrophe insurance".

"Private investors have seen the world's markets flooded with cheap money," said Heraeus refinery's head of sales, Wolfgang Wrzesniok-Rossbach, in his detailed presentation on Gold Bars, coins and other retail-investment products.

Noting the surge in European bar and coin demand during the Greek deficit crisis of early 2010, "Here in Germany there is a great desire for security. We are the most over-insured people in the world.

Gold Investment is being further driven by the central-bank response to the financial crisis, he said, because German investors fear that "Haven't we seen this before, in 1923?"

That year, as Germany printed massive quantities of bank notes to try and repay its international debts, the Mark collapsed to 4.2 trillion per Dollar, with the cost of living doubling every few hours.

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Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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